Professional Documents
Culture Documents
Submitted to :
Prof. Paul Taffe
Dublin Business School
Submitted by :
KrsihnaVatsavayi : 1384095
Saseendran Subin : 1434388
Table of Contents
Topic Page no
Abstract 3
Executive summary 3
Business Mission and Vision 3
Product portfolio 4
The expansion 4
The positioning 4
The retail strategy 5
SWOT analysis 5
Reasons for failure 6-7
Lessons learned 7-8
Possible solutions 8-9
References 10
The facts and figures mentioned in this case have been rounded off and may not reflect the
actual figures of the company. This case study is purely meant for the purpose of academic use and
study and not for commercial use.
Abstract:
The case study's primary objective is to analyze all the facts responsible for the downfall of an Indian
fledging retail chain, Subhiksha. Subhiksha was started by Mr. R. Subramanian, an alumnus of Indian
Institute of Management, Ahmadabad (IIM-A), a prestigious B-school in India. Long-term success,
survival and profitability of Subhiksha was expected.
Subhiksha with a pioneering approach and giving new definitions to retailing, ventured into the Indian
retail industry in 1997. Subhiksha had done extensive research on customer behavior and found that
offering branded goods at a lower price than competitors could make them stand competitive in the
retail industry and they made this their Unique selling proposition (USP).
By 2007, Subhiksha became India's largest retail chain with 1,665 stores across the country with its no-
frill, discount store format. With Indian organized retail industry blooming under the economic
liberalizations and attention from global players, Subhiksha was expected to grow even bigger, but as
global recession set in, credit markets froze, Subhiksha stumbled as its capital structure could not
support the requirement. Lack of liquidity and over expansion troubled Subhiksha as it failed to pay
rent to landlords and salary to its employees. Operations finally had to come to a standstill.
• Vision- “To emerge as the largest retailer in the 'Food Grocery Pharmacy' segment in all the
geographical regions we operate from”.
• Mission- To deliver consistently better value to Indian consumers, has guided Subhiksha to
deliver savings to all consumers on each and every item that they need in their daily lives, 365
days a year, without any compromise on quality of goods purchased.
Executive Summary
Subhiksha, which means ‘prosperity’ in Sanskrit, was one of the largest retail value chains in India (in
terms of no. of stores) with over 1600 outlets selling groceries, fruits, vegetables, medicines and lately,
mobile phones.
Four parts to their corporate strategy-
Dominance in the Retail Market
Expansion in the Indian market
Creation of Positive Brand and Company Recognition
Branch Out into New Sectors of Retail
• Pharmacy:
-Subhiksha stores are generally equipped with a pharmacy that stores mostly basic medicines. All
medicines are made available to consumers at a 10% discount.
• Telecoms:
-Subhiksha forayed into the mobile retailer business by 2007 and offers handsets, recharge cards and
accessories from all leading cell phone manufacturers at lower prices.
The expansion:
➔ In March 1997 - Opening of the first retail store in Chennai, with Rs 500,000 initial investment.
➔ March 1999 -14 stores in Chennai
➔ June 2000 - 50 stores in Chennai, ICICI ventures joins Subhiksha
➔ June 2002 - 120 stores in whole of Tamil Nadu
➔ 2004 - Change in principle: from ‘consolidation’ to ‘expansion’
➔ June 2006 - 420 Stores in other big states in India namely Gujarat, Delhi, Mumbai, Andhra
Pradesh and Karnataka.
➔ Feb 2007 - 500 stores across country
➔ Dec 2007 - crosses 1000 stores across India
➔ October 2008 - 1600 stores across India
The crash:
⇓ December 2007 – keeping in view of the uncertain stock market condition, Subhiksha shelves
much needed IPO.
⇓ April 2008 – Subhiksha plans private wholesale markets.
⇓ Aimed to expand to 2300 outlets across India by September 2009.
⇓ June 2008 – Subhiksha searches for alternate routes to generate cash so as to fund expansion.
⇓ September 2008 – breakouts of news on Subhiksha not long delays in vendor payments and
employee salaries.
⇓ October 2008 – newspapers state problems in cash flow. Vendors cutting supplies causes stores
to go dry. Employees shouting for obtaining salaries. Subhiksha defaults on rent for the stores.
⇓ January 2009 – CEO admits Subhiksha needs Rs. 3 billion just to stay afloat. Subhiksha tries
negotiations with property owners on dues and rentals.
The Positioning:
Subhiksha made an extensive research on customer behavior and found that offering branded goods at a
lower price than their competitors could make them stand in the competitive retail industry.
• Low Prices: Subhiksha made extensive research on customer behavior and found that offering
branded goods at a price lower than their competitors could make them stand on firm ground.
• Trust: Subhiksha’s name inspires trust and its consumers rely on it through all times to deliver
larger savings as compared to any other retail chain or stand alone mom and pop stores.
• Savings: It focuses on the concept of constant low pricing so that regular customers see the
same low prices all year round(below MRP) and are able to buy with the assurance that they
stand to save on any commodity on any given day.
The Retail Strategy:
Subhiksha focused on two factors for its model called the two C's:
✔ Criticality of Cost.
✔ Convenience of Buying
The following points will show how Subhiksha is integrating all that it has to achieve the above 2 C’s:
➔ Opening a chain of simple stores with no air-conditioning, no fancy lighting, and no touch and
feel experience was a deliberate strategy.
➔ Their approach combines the simplicity of a local Indian mom and pop shop with the efficient
supply chain of a large retailer.
➔ Their unique selling proposition (USP) is an everyday low price (5-10% less than MRP,
enabled by combining centralized buying and an efficient supply chain, with their simple store
format.
➔ Subhiksha follows an Every Day Low Price Scheme (ELDP). They offer the lowest prices
possible every single day on almost everything that’s sold.
➔ Shops are located just off main roads, to take advantage of vastly lower rentals.
➔ Catchment area of customers is never beyond a two km radius, since its customers usually come
on two-wheelers or on foot.
Strengths Weakness
-Lack of expertise in Indian Retail
-Combination of Discount and Carpet Bombing environment
model -Low grade lower management team
-Strong experienced Top management -Strategy of debt-led Rapid expansion on a
-High Customer base small equity base
-High Brand Value -Long time taken in IT Implementation
-No funds for operating expenses
Opportunities Threats
-World's most lucrative retail market -Economic uncertainty and Recession
-Heavy Investment industry from FII’s (foreign -Strong Competitors at National and
institutional investors) and Venture Funds Regional Level
-Huge no. of customers -Price war and shrinking margins
-Risk in Retailing and rapid expansion
Galloping on the back of rapid expansion, Subhiksha’s turnover grew from Rs. 3.3billion in 2005-06 to
Rs. 8.33 billion in 2006-07, and then by 2007-08 to Rs. 23 billion. Likewise, having grown from 150
stores in September 2006 to 1600 plus stores in September 2008, Subhiksha managed to become the
envy of its competitors. By the end of 2008, they hoped of grossing Rs. 43 billion from 2300 stores, in
turnover. Intriguingly, all growth was fuelled from a small net worth base of Rs 2.5 billion having
equity component of Rs. 1.8 billion.
Lessons learnt
Subhiksha story highlights the perils of growth at any cost and challenges of scaling a business –
something which today’s startups will face tomorrow.
Never overlook the fundamentals of running a business while easy money is flowing in.
Healthy management of cash-flow is key in deciding the fate of an enterprise.
Every retail giant faces some common problems while their empire is in the process of ever-
expansion. High level of growth means a store is opened every other day at least. Often it can
be seen that wrong locations might be selected. Expensive leases may be agreed upon and
poorly trained staff might be employed. These can prove to be a massive headache for the
organization.
Monetary greed should never be the motivation behind a project/business. Striving to reach the
pinnacle/the number one position is an admirable trait, but it should not be with an ‘at any cost’
attitude.
Any business would require the proper documentation of all processes and performance.
Therefore all businesses should be backed by a sound and well-defined IT structure.
Finance should be managed with utmost care. Operational expenses must be considered before
indulging into costly advertisements and expansion projects.
Foraying into new ventures requires thorough research and analysis of that particular venture
and its possible outcomes.
Possible solutions
• MONETARY CONTROL - Instead of huge advertisements, Subhiksha should have
concentrated on quality control, improvement of their outlet conditions and their infrastructure.
They targeted customers in the immediate vicinity of their outlets; therefore the advertisements
did not exactly serve the purpose they were supposed to.
• Early implementation of IT would have helped in the organized running of the business.
• Introducing effective measures for tracking employee activities and having stringent rules and
regulations within the corporation would have helped them.
• PULLING THE BREAKS - Subhiksha should have slowed down their expansion process and
concentrated more on the smooth working of the retail empire. Huge investments and cash
flows were involved and Subhiksha did not have the right expertise to cope with it.
• WHERE NEXT - Should have done more research on the places they opted for opening their
outlets. Most of the outlets turned out to be quite costly and Subhiksha ended up in huge debt
due to rent payment issues with landlords. Only few stores would have been profitable in terms
of cash flows.
• CONSOLIDATE – Subhiksha was doing very well until the global recession crisis. But
recession was never the fault for their collapse. They should have consolidated their business
before dwelling on expansion.
• GOVERNMENT HELP – The business model of Subhiksha is infact quite effective and they
do have a large number of loyal customers. The government could help by providing financial
assistance for Subhiksha’s running which inturn is going to benefit the common man of India.
• FRANCHISING OF OUTLETS – Most of the 1600 odd stores could be given out on franchisee
basis. This would help them in raising some funds.
References:
http://en.wikipedia.org/wiki/Subhiksha
http://trak.in/tags/business/2009/02/10/the-rise-and-fall-of-subhiksha/
http://www.business-standard.com/india/search_news.php?
search=Subhiksha&select=keyword
http://www.linkedin.com/companies/subhiksha
http://www.rediff.com/money/2009/jan/31inter-subhiksha-has-run-out-of-cash.htm
http://www.indiaretailbiz.com/blog/category/indian-retailers/subhiksha-subramanians/
http://www.phadoogyan.com/2009/07/subhikhsa-price-warrior.html
http://www.rediff.com/money/2007/feb/05bspec.htm
http://www.scribd.com/doc/11968427/Subhiksha-Case-Study
http://www.scribd.com/doc/20097640/Subhiksha-crm-prm-Case-Study-Iim-Indore-Pgcrm-
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